If your practice manages trust accounts, then you need to know what a three-way bank reconciliation is. As a trust administrator you are required to perform this balance periodically, most likely every thirty to sixty days; check your state regulations to see what the rules are in your state. These reconciliations are difficult to do by hand which is why so many attorneys depend on legal trust accounting software like CosmoLex to handle three-way reconciliation reports for them.
Three Balances, All Equal
You have probably performed a two-way bank reconciliation at some point in your life when you balanced your checkbook. You compare the latest bank statement (the “bank balance”) to your check register (the “book balance”), correcting for checks or deposits that have not cleared yet. If you and the bank show the same balance, then you are fine. If not then somebody — probably you — made a mistake that needs to be corrected.
When you are managing a trust you really have two sets of ledgers: the check register and the individual client ledgers. The check register is a balance of the entire bank account, while the client ledgers are balances of each client’s trust funds within the account. The sum of the individual client ledgers (the “client ledger balance”) must total the same as the bank balance and the book balance.
What If They Don’t?
If any of the three balances doesn’t agree with the other two, or worse if all three give you different numbers, then there are mistakes in your ledgers. You need to go over each transaction and make sure it was entered the same on the bank statement and in your law firm billing software. Out of balance ledgers almost always mean an amount was entered wrong, or an amount was omitted from one of the balances.
You also need to correct for uncleared transactions. If you have a payment or deposit in your register that has not cleared the bank, you adjust your book balance to correct for that.
Generating Three-Way Reconciliations With CosmoLex
Three-way bank reconciliations can turn your hair gray unless your software can take care of it for you. CosmoLex legal software generates these reports for you in PDF format for easy archiving. Under “Reports”, click on “Banking” in the left column and then “Three-Way Reconciliation Report” under the menu that appears. Select your trust account, the date of the bank statement you want to balance against, and the sort method and then click Generate. After a few seconds, your web browser will ask you to save a PDF file that is your reconciliation report.
Trust account management is much easier with CosmoLex’s integrated escrow features. If you aren’t yet a CosmoLex subscriber, try the software free with no obligation, or learn more about legal trust accounting with Cosmolex.